A D.C. Circuit decision (In re Kellogg Brown & Root, Inc.) has confirmed privilege over employee statements during in-house investigations. Can the world take comfort? This article examines privilege in the context of investigations and some of the subtleties of privilege in the U.S. and the UK.
In Upjohn Co. v. United States, 449 U.S. 383 (1981), the U.S. Supreme Court held that statements of a company’s employees to the company’s counsel in the course of an internal investigation are protected by the attorney-client privilege. Recently, the D.C. Circuit reversed a lower court order compelling the disclosure of employee statements made to non-attorneys conducting an internal investigation and held that such communications are privileged as long as “one of the significant purposes” of the investigation is to obtain or provide legal advice. In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 WL 2895939 (D.C. Cir. Jun. 27, 2014). The lower court’s order, issued earlier this year, had caused considerable uncertainty over the scope of the attorney-client privilege in the context of an internal investigation, and the D.C. Circuit’s decision in KBR provides welcome clarity in this area. We caution, however, that statements made by employees during internal investigations may not receive the same protections outside of the United States unless investigations are structured and carried out in a certain way and with a privileged purpose which is clearly documented.
In re Kellogg Brown & Root, Inc. (D.C. Cir. 2014)
The controversy that led to the D.C. Circuit’s ruling arose after an employee of defense contractor Kellogg Brown & Root, Inc. (“KBR”) filed a False Claims Act complaint alleging that the company and its subsidiaries had defrauded the U.S. Government. During discovery, the plaintiff sought documents related to KBR’s internal investigation of the alleged fraud, which KBR asserted were privileged. After reviewing the disputed documents in camera, the district court found that the statements of company employees during the internal investigation were not privileged because the investigation was conducted by non-lawyers in order to comply with government regulations and KBR’s code of business ethics, and “not to secure legal advice.” In the lower court’s view, such communications could not be privileged because seeking legal advice was not the “but for” cause of the communications.
The D.C. Circuit found that the district court “applied the wrong legal test and clearly erred.” According to the appellate court, as long as “one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply.” “That is true,” the court continued, “regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.” With respect to KBR’s internal investigation of the plaintiff’s allegations of fraud, the court concluded, “there can be no serious dispute that one of the significant purposes of [the] investigation was to obtain or provide legal advice.”
The KBR court’s expansive interpretation of the attorney-client privilege was promptly hailed as a significant victory for corporate entities that utilize internal investigations by non-lawyers directed by in-house or outside counsel. Indeed, the D.C. Circuit’s resounding affirmation of the Upjohn principle in this closely-followed litigation will give comfort to counsel going forward.
But, for corporate entities conducting investigations internationally, that comfort may be misplaced. To compare, documents protected by the attorney-client privilege in the U.S. may not be afforded the same status under the UK’s equivalent category of privilege, known as the legal advice privilege. Furthermore, the UK’s Serious Fraud Office (“SFO”) appears to expect corporate entities to waive privilege over their own investigations into corporate wrongdoing if they wish to receive the benefits of self-reporting and/or qualify for a Deferred Prosecution Agreement (“DPA”).
UK Law on Legal Professional Privilege
The documents at issue in the KBR case might not be considered privileged in the UK (although they could have been had the investigation been structured differently and the purpose behind creating the documents made clear). In the UK, communications and/or documents can be protected by Legal Professional Privilege, which consists of two categories: Litigation Privilege and Legal Advice Privilege.
Legal Advice Privilege –
This covers communications between lawyers and clients for the purpose of giving or obtaining legal advice and documents created by lawyers during the course of giving legal advice although not actually delivered to the client. Privilege applies to the advice given by in-house lawyers as well as external lawyers, as long as they are acting in their capacity as lawyers and not in an executive or compliance capacity. Critically, however, only those employees actually charged with responsibility for instructing the lawyers are considered to be the “client” for purposes of the legal advice privilege, and statements by a non-lawyer third-party (even to or at the direction of a lawyer) can never be protected by the legal advice privilege.1 The employee statements obtained by non-lawyers in KBR would not have been covered by legal advice privilege because they would not be considered communications between lawyers and their client.
Litigation Privilege –
This covers (i) confidential communications between either the lawyer (or the client) and a third party, or (ii) confidential documents created by or on behalf of the lawyer or his client. These communications or documents must be made for the sole or dominant purpose of litigation (including adversarial2 government investigations), where litigation is pending, existing, or reasonably contemplated.3 Even if litigation was pending, existing, or reasonably contemplated at the time of the employee statements in the KBR case, the litigation privilege would apply only if these statements had be prepared predominantly for that purpose.
To maximize the chances that employee statements such as the ones at issue in KBR would be protected by the privilege in the UK, it would have been preferable for KBR’s lawyers to conduct the interviews and to document (if it were the case) that the statements were being taken for the purpose of anticipated litigation.
Other Impediments to Privilege for Investigations
Apart from the differences in the scope of the privilege in the U.S. and the UK, the impact of the KBR decision is limited on both sides of the Atlantic by the pressure that both the U.S. Department of Justice (“DOJ”) and the UK’s Serious Fraud Office (“SFO”) may bring to bear on corporate defendants to disclose the source materials of internal investigations in order to gain the benefits of cooperation. Again, however, disclosure of employee communications may be more likely in the UK.
In the United States, following the “Filip Memorandum” of August 2008, DOJ policy states that corporations are expected to disclose facts but has specifically directed prosecutors not to request waivers of the attorney-client privilege, which are strictly voluntary.4
By contrast, the SFO has suggested that it may require corporate entities to waive privilege over their own investigations into wrongdoing if they want to be seen as truly self-reporting wrongdoing. Guidance on self-reporting on the SFO website states that “in considering whether a self-reporting corporate body has been genuinely proactive, prosecutors will consider whether it has provided sufficient information, including making witnesses available and disclosing the details of any internal investigation, about the operation of the corporate body in its entirety” [emphasis added]. The disclosure of witness accounts and reports of any internal investigation would also be given “considerable weight” in assessing whether a corporate entity has provided co-operation that would make it suitable to enter into the recently created Deferred Prosecution Agreements (“DPA”s).5 For example, one of the factors tending against prosecution of a corporate entity, and therefore tending in favor of an invitation to enter into a DPA is the co-operation of the corporate entity, to include disclosing witness accounts and providing a report in respect of any internal investigation including source documents.
In a recent speech to the Annual Employed Bar Conference Alun Milford, General Counsel of the SFO, was highly critical of attempts by corporations to assert privilege over witness accounts taken during the course of an internal investigation. He made clear that the SFO regards the assertion of privilege over witness accounts as “unhelpful” and “frankly, impossible to reconcile with an assertion of a willingness to cooperate.” However, some comfort can be taken from Mr. Milford’s insistence that only a limited waiver of privilege is required over witness accounts and that the SFO “are not interested in seeing the advice clients received from their lawyers.” Mr. Milford is equally clear however that the SFO “do not understand why a truly cooperative company would deny us them" [witness accounts].
The differences between the U.S. and the UK approaches to privilege mean that corporate entities need to think carefully about how to structure cross-border investigations, to ensure that documents produced have the benefit of privilege in both jurisdictions. It is important to seek specialist advice. Dechert’s white collar team has deep knowledge and experience of directing complex and challenging internal investigations to successful conclusion, and in doing so helping clients to resolve critical concerns such as whether to waive privilege.